The case for investing in last resort housing Issues Paper No. 10, March 2017 About Melbourne Sustainable Society Institute (MSSI) Issues Papers MSSI strives to inform and stimulate public conversation about key sustainability questions facing our society. Our Issues Papers provide information and trigger discussion about these issues. Each paper encapsulates the insights of a thinker or practitioner in sustainability. While MSSI endeavours to provide reliable analysis and believes the ma- terial it presents is accurate, it will not be liable for any claim by any party acting on the information in this paper. Lead Author Ellen Witte is a Senior Associate, Director and Partner at SGS Economics and Planning, a leading planning and economics firm whose purpose is to shape policy and investment decisions to achieve sustainable places, communi- ties and economies. Ellen is a leading expert and commentator in the field of social and affordable housing. She has extensive experience in social, environmental and economic impact assessments, and financial feasibility studies. Acknowledgements This Issues Paper was authored by SGS Economics and Planning (SGS). A Project Steering Group also provided input for the study reported in the paper, and some members provided specific information for the report through personal communications, which is gratefully acknowledged. The Steering Group members were: • Prof Brendan Gleeson, Melbourne Sustainable Society Institute, University of Melbourne • Prof Carolyn Whitzman, Lead Researcher, Transforming Housing Research Network, University of Melbourne • Dr Kate Raynor, Post-Doctoral Researcher, Transforming Housing, University of Melbourne • Mike Lennon, Housing Choices Australia • Dr Heather Holst, Launch Housing • Rob McGauran, MGS Architects • Robert Pradolin, Concerned Property Developer • Dr Marcus Spiller, SGS Economics and Planning • Patrick Fensham, SGS Economics and Planning Citing this paper Please cite this paper as Witte, E. 2017 ‘The case for investing in last resort housing’, MSSI Issues Paper No. 10, Melbourne Sustainable Society Institute, The University of Melbourne. ISBN: 978 0 7340 4951 3 2 Executive Summary It’s cheaper to provide last resort housing to homeless people than to leave them sleeping rough, a new cost-benefit analysis has found. The analysis found governments and society benefit more than they spend by providing last resort housing to homeless individuals. This is mainly through reduced healthcare costs, reduced crime, and helping people get back into employment or education. This comprehensive cost-benefit analysis was commissioned by a team of experts from the University of Melbourne, NGOs, and architecture firms. The analysis was conducted by consulting firm SGS Economics and Planning. Key points: The number of people sleeping rough in Melbourne’s streets has increased by over 70% in the last two years. Homelessness is now at emergency levels. Key causes are the unaffordability of housing, people escaping domestic violence and a structural lack of social housing. There has been a reduction in the supply of “last resort housing”. Last resort housing refers to legal rooming and boarding houses, and emergency accommodation. On average, more than 40 requests for last resort housing are turned down across Victoria every day. Our analysis shows that the government providing one last resort bed will generate a net benefit of $216,000 over 20 years. That averages to a net benefit of $10,800 per year. The majority of those benefits (75%) flow to society and the remainder to the individual. For every $1 invested in last resort beds to address the homelessness crisis, $2.70 worth of benefits are generated for the community (over 20 years). In other words, the benefits of providing last resort housing outweigh the costs. There is much to gain in economic and social terms, both for government and society, by assisting the homeless. This is because if homeless individuals find stable accommodation they require less healthcare and fewer emergency admissions, and they are less likely to be involved in crime (both as victims and perpetrators). They are more likely to reconnect with employment and education. Homelessness also incurs property blighting and nuisance costs. Importantly, last resort housing can greatly improve the quality of life of individuals. Our analysis shows that the form of last resort housing which makes the most sense economically is the construction of new, permanent stock – especially medium to large-sized facilities. Converting existing buildings, and subsidising private rentals, are both worth considering as well especially in the short term. The commissioning team calls on governments to build more new, permanent last resort housing to help the homeless, because the benefits outweigh the costs. Existing last resort housing should be pro- tected and maintained. These are issues for local, state and federal governments. The commissioning team hopes the research presented in this report will be used to develop stronger business cases for - and ultimately generate substantial investment in – last resort housing. 3 Introduction Melbourne is experiencing a surge in homelessness. The number of people sleeping rough in Melbourne’s streets has increased by over 70% in just two years (2014-2016) according to City of Melbourne street counts (2016). The reason is two-fold; there has been an increase in pressures that contribute to homelessness, in tandem with a reduction in the supply of last resort housing. Evidence shows that the supply of government funded or community run last resort housing for those most at risk continues to decrease in inner Melbourne. This is happening in an environment where the demand for this type of housing, aimed at preventing people from sleeping rough, is on the rise. Some of the key drivers of increased demand are family violence, mental health issues, substance abuse, and an inadequate supply of social and affordable housing; together these factors create, what Victorian Housing Minister Martin Foley described as a ‘perfect storm of events’ culmi- nating in an increase in rough sleepers (Lucas, 2016). Even when excluding these exacerbating drivers, the sheer fact is that the supply of last resort hous- ing for those most at risk has not kept pace with even average population growth (which can be seen as a minimum provisioning target). The system providing housing of last resort is failing and is by no means able to meet the needs of those most at risk. We contend that even in a well-functioning housing market with adequate investment in social hous- ing, there will be a need for a stock of last resort housing to cater for those people who, for a wide variety of reasons, find themselves in need of emergency or crisis accommodation. Of course, if the housing market is dysfunctional and there is structural inadequacy in social housing investment (both conditions arguably being in full force as we write), the demand for housing of last resort will inevitably escalate from a notional equilibrium level. Against this background, this paper is narrowly focussed on the adequacy of last resort housing in Melbourne and the economic merits of investing in this sector. However, investment in last resort housing—as necessary as it is—should not be mistaken as the solution to Victoria’s affordable hous- ing challenge. Many other policy settings need to be addressed, not least of which is restitution of base load funding for new social housing. This Issues Paper provides a summary case of the supply and demand drivers of homelessness and why expanding the supply of last resort housing in Melbourne is required. A preferred strategic option to address the crisis is then identified. The preferred option identified by the paper focuses on providing a new purpose designed permanent stock of rooms/units, to address the critical under supply. The paper then provides an outline and quantification of the economic benefits of addressing home- 4 lessness for the entire community including health cost savings, reduced crime, improved human capital, community pride and social justice, avoided property blighting, volunteering benefits and economies of scale and scope in the last resort housing sector. The quantification of these benefits, compared to the likely costs, resulted in a benefit per bed of $216 600 net present value (NPV), and a benefit cost ratio (BCR) of 2.7 over twenty years. A BCR of 2.7 means that for every $1 invested in last resort housing beds to address the homelessness crisis, $2.70 worth of benefits are gen- erated for the community. It is intended that this Issues Paper can be used to guide and support business case development for last resort housing and related initiatives by demonstrating that the benefits of supporting the home- less actually outweigh the costs of providing the beds in purely economic terms, let alone approach- ing the issue from a human justice standpoint. Defining homelessness The City of Melbourne uses a definition of homelessness developed by the Australian Bureau of Statistics (ABS) in 2012. The ABS describes the complexity of homelessness from a ‘social policy and service delivery perspective’ and acknowledged there are a wide range of views on what constitutes homelessness. The ABS’ current cultural definition of homelessness is ‘informed by an understanding of homeless- ness as home-lessness, not roof-lessness’. As such, the definition rests upon a number of core elements considered to constitute a dwelling